Baker Hughes 2013 Annual Report Download - page 63

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including the U.S. and China. Though steps have been taken by governments to maintain growth rates,
worsening macroeconomic conditions in the Eurozone remain a threat to the global economic outlook.
Since the recession of 2008/2009, China's rapid development and industrialization has been a major factor
in driving up worldwide economic growth; however, China's economic growth rates have slowed in recent
years to as low as 7.6% in 2013 compared to 2012. For 2014, the International Monetary Fund ("IMF")
estimates China’s economic growth will be even lower at 7.5% as policymakers refrain from stimulating
activity amid inflation concerns. In the U.S., the IMF forecasts 2.8% Gross Domestic Product growth in
2014, a slight increase over 2013, driven by continued strong private demand, and in particular, a
recovering housing market. However, this growth may be hampered by any deterioration of the global
economy, particularly in China and Europe. Additionally, the Federal Reserve has hinted on the potential
withdrawal of quantitative easing by the middle of 2014, which would eliminate approximately $1 trillion in
yearly liquidity injections. This could result in interest rate hikes and therefore, increase the cost of
borrowing towards new capital projects, including in hydrocarbons.
• Demand for Hydrocarbons - In its January 2014 Oil Market Report, the IEA forecasted global demand for oil
to increase by 1.3 million barrels per day (“bpd”) in 2014, reaching 92.5 million bpd. This expected
increase, mainly driven by countries outside the OECD, should support upstream investment in oil and
natural gas production around the world. In addition to the global growth in oil demand, natural gas will
continue to play an increasingly important role in meeting the world’s energy needs. In its January 2014
Short-Term Energy Outlook, the EIA estimated that industrial demand for natural gas in the U.S. will
increase by 0.2 billion cubic feet per day (“bcfd”) in 2014, reaching 20.6 bcfd. Overall U.S. natural gas
demand is expected to decline by 1.6 bcfd to 69.6 bcfd in 2014 due to lower electric power sector demand
and lower heating demand.
• Oil Production - The January 2014 IEA Oil Market Report projected non-OPEC production to grow by 1.7
million bpd in 2014. This increase is largely due to continued production growth from U.S. tight oil
formations and Canadian oil sands, fostered by sustained higher oil prices. OPEC’s own production target
has been unchanged from 30 million bpd, with slight changes possible if there is substantial movement in
the oil price. Significant investments are expected to be required to increase production capacity, especially
as output from mature fields decline and production rates from early wells at unconventional deposits
continue to drop.
• Natural Gas Production - Natural gas production continues to grow worldwide, including in North America
where drilling activity has slowed. Despite U.S. natural gas-directed rig counts reaching 18-year lows in
recent months, averaging 383 rigs for 2013 which is down from 556 rigs in 2012, natural gas production in
the U.S. has increased. In its January 2014 Short-Term Energy Outlook, the EIA estimated that U.S. natural
gas production will increase by 2.1% in 2014, from 70.2 bcfd to 71.7 bcfd. Overall, global natural gas output
will tend to up in 2014 due to the increased production in the U.S., as well as in the Eastern Hemisphere as
high natural gas prices in Europe and Asia should encourage growth.
• Oil Prices - With WTI oil prices trading between $86.68/Bbl and $110.53/Bbl, and Brent trading between
$96.79/Bbl and $119.34/Bbl during 2013, most global oil activity will continue to provide adequate returns to
encourage incremental investment. Based on oil supply forecasts and modest anticipated economic growth
globally, oil prices are expected to remain relatively stable throughout 2014, barring any major
macroeconomic changes.
•Natural Gas Prices - With Henry Hub natural gas prices trading between $3.08/mmBtu and $4.52/mmBtu
during 2013, and the EIA projecting in its January 2014 Short-term Energy Outlook an average of $3.89/
mmBtu in 2014, the economics of most dry natural gas-directed investments in North America will likely
continue to be marginal. This is primarily due to the abundant supplies from unconventional plays in North
America, including associated gas produced at liquids-rich unconventional plays.
Activity and Spending Outlook for North America - Overall customer spending in North America is expected
to increase between 4% and 5% in 2014 compared to 2013, but the average annual rig count is expected to be flat,
in part reflecting improved efficiencies in drilling performance. Overall service activity has increased in North
America as customers demand robust technologies such as advanced directional drilling, complex completion
systems and pressure pumping to develop liquids-rich unconventional plays such as the Eagle Ford and Bakken.
Drilling activity in the Gulf of Mexico is expected to increase in 2014, with the addition of 4 or 5 new deepwater
exploration rigs. Completions and development activity in the Gulf of Mexico will also continue to grow in 2014. In
Canada, overall rig activity in 2014 is expected to be up approximately 5% as compared to 2013.